Twitter’s ad revenue rises but average ad rate falls 67% in 2013

Twitter has reported a 110 per cent year-on-year rise in ad revenues taking the total to $664.9m (£397.5m) for 2013, yet the average cost of an ad dropped 67 per cent in 2013 – 18 per cent in the last quarter alone.

Adjusted earnings before interest, taxes, depreciation and amortization rose from $21,164 in 2012 to $75,430 in 2013. Meanwhile mobile devices accounted for over 70 per cent of its entire ad revenue in the year to 31 December 2013, according to the company’s latest annual report.

Sales and marketing costs rose from $86,551 in 2012 to $316.216 in 2013, with an overall net loss of $635,831 from operational costs in 2013 – up from a $77,083 loss in 2013.

Despite the significant increase in ad revenue, the company saw a sharp fall in the average cost of ads, dropping 18 per cent in the last three months alone.

Digital news site Quartz, which has been tracking the average ad rates, reported that it they have been declining since at least the beginning of 2012, citing that it’s down 81 per cent from that point.

Twitter has attributed the drop in average ad value to the increase in its inventory, which has driven down prices.

"The decreases in cost per ad engagement over these periods were primarily driven by higher ad engagements as a result of continued improvements made to our ad products and our prediction and targeting capabilities. Supply of advertising inventory increased as we expanded the distribution of our Promoted Products to our mobile applications and additional markets outside of the United States in 2012. The increase in advertising inventory provided us with additional opportunities to place ads on our platform. This reduction in cost per ad engagement made our Promoted Products more attractive for our existing advertisers and new advertisers, including small and medium sized businesses with smaller advertising budgets, as well as international advertisers.

“As we continue to optimise for advertiser value and the overall user experience, the cost per ad engagement may continue to decline over time, and we expect the cost per ad engagement to decline in the near term. In the event that cost per ad engagement continues to decline, and we are unable to continue to offset the impact of such decreases on advertising revenue by increasing the number of ad engagements, our advertising revenue would decline.

"We believe that, in order to increase the cost per ad engagement, we will need to increase advertiser demand for our Promoted Products by enhancing the value of such products. We plan to increase the value of our Promoted Products by increasing the size and engagement of our user base, improving our ability to target advertising to our users’ interests and improving the ability of our advertisers to optimize their campaigns and measure the results of their campaigns. We also believe our goal of maximizing the long-term value of our platform for our users and advertisers should make Promoted Products more attractive to our existing and new advertisers and allow us to deliver more relevant ads on our platform," it said in a statement within the report.

The microblogging company, first reported its revenue for the quarter, which ended 31 December, was $243m, up 116 per cent from $112m in the fourth quarter of 2012, in February.

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